Industrial Technology Update - Q3 2019

Industrial Technology - Update

Introduction

Harris Williams is pleased to present our industrial technology industry update for Q3 2019. This report provides commentary and analysis on current capital market trends and dynamics within the industrial technology space.

One emerging trend in industrial technology is edge computing. As opposed to the overall trend of “cloudifying” everything, in particular cloud processing, edge computing goes the other way and puts the processing power where it is needed locally. You will find further information in our Know-How section.

In the first half of 2019, the stock markets recovered from a turbulent second half of 2018. However, the uncertainty around the overall economic environment has largely increased over the past few weeks, with several political topics proving to be quite persistent.

We hope you find this edition helpful and encourage you to contact us directly if you would like to discuss our perspective on current industry trends or our relevant industry experience.

Industry Events

Our team will attend the following trade fairs over the next few months. Please let us know if you will be at one of the conferences and would like to connect.

Coming up: Conferences H2 2019

September/Chicago, Illinois: WEFTEC, the Water Environment Federation's Technical Exhibition and Conference, is the largest annual water quality event in the world.

October/Stuttgart, Germany: Motek is the world’s leading event in the fields of production and assembly automation, feed technology and material flow, streamlining through handling technology, and industrial handling.

November/Nuremberg, Germany: This year will mark the 30th anniversary of the SPS trade fair, which covers the entire spectrum of smart and digital automation – from simple sensors to intelligent solutions.

HW Deal Spotlight: ONICON

ONICON, Inc. (ONICON), is a leading provider of precision flow, level and specialty measurement solutions, supporting diverse end markets and niche applications. Through its portfolio, ONICON offers a broad range of proprietary and highly engineered solutions. The company’s technology and service capabilities enable customers to measure resource usage and increase process efficiency.

Harris Williams exclusively advised ONICON, a portfolio company of the Harbour Group, on its acquisition by TASI Holdings.

Read the full press release here. Please contact any of the HW team members on the right if you would like to receive additional information on this transaction.

Industrial Technology - Update

Increasing Usage of Smart Water Meters Worldwide

Different global trends such as water wastage, climate change, and urbanization are putting pressure on governments all over the world. Smart water meters or smart meters provide data to track water usage and identify waste and leakage. According to a new report from ABI Research, smart meters will become a more and more critical component for water conservation initiatives worldwide. The tech advisory firm further estimates that these trends will result in 400 million installed smart water meters by 2026. The APAC region was the leading region responsible for 42% of all installed smart meters worldwide, followed by Europe and North America. However, Europe is expected to grow by the fastest rate (CAGR of 33%) in the next eight years. Read more here.

Rising Threat through Cyber Risks

A new study of VDMA on “Industrial Security,” based on a survey of manufacturing companies, concludes that cyberattacks are recognized as an increasing threat for small and medium enterprises (SME). The majority of SMEs (60%) expect a rising number of security incidents in the next few years. As the main damages, interviewees report financial losses (50%) and production downtimes (30%).

Despite 83% of the companies being familiar with industrial safety regulations, only 40% have currently implemented these standards. Furthermore, less than the half of participants (41%) in the survey have implemented suitable risk management systems. The number of these companies is slightly higher for larger companies with more than 1,000 employees (58%). Read more here.

The results are that 153 cities worldwide have an official smart city strategy, 15 of these have plans that demonstrate a comprehensive strategic approach, and only eight cities have made advanced progress in implementing their strategy. The Austrian capital Vienna is leading the rank, followed by London (UK) and St. Albert (Canada). However, on average Asian strategies perform the best.

Industrial Technology - Update

Know-How: Edge Computing

Edge computing refers to a computing infrastructure divided into multiple devices that exists close to the source(s) of data (e.g., industrial machinery). The computing devices are often used in remote locations with limited connectivity or in cases where significant amounts of data are generated and processed. In these cases, traditional cloud computing with centralized computing power at a different location is not optimal or feasible.

With the increasing importance and use of IoT-enabled devices, edge computing is becoming increasingly common and, according to a study by McKinsey, will be a market worth $215bn by 2025.

Example: Drilling and mining facilities employ thousands of sensors, some of which could potentially generate terabytes of data, in extremely remote locations. Waiting for the upload to, the computation of, and the download from a cloud-based solution to change operational parameters would not be possible.

Other strong users of edge computing are the travel, transport and logistics sectors, which currently make up 24% of total use cases. The emergence of autonomous driving will likely require edge computing as, according to estimates from Intel, autonomous cars generate four terabytes of data for every 90 minutes of driving. Analyzing this amount of data in a centralized location is not applicable in a fast-paced environment such as traffic.

Market Forecast

According to a report by Allied Market Research, the edge computing market is forecast to grow to c. $ 16.6bn in 2025 - a CAGR rate of 32.8% over the forecast period from 2018 to 2025. You can find the report here. A similar report from Grand View Research forecasts a CAGR rate of 54.0% from 2016 to 2025.

Valuation Metrics Overview

Uncertainty Dominates the 2019 Global Stock Market So Far

The global stock market recovered from a challenging end of 2018. Nonetheless, Fidelity believes that the “global economic momentum has peaked.“ The major central banks in the world have therefore changed their policy toward an easing bias, indicating that most major economies have entered a more advanced phase in the business cycle. This global growth slowdown and the escalation of the US-China trade tension are further negatively influencing the confidence of companies.

According to Schroders, the uncertain environment caused by the US’ trade stance caused a mid-quarter turbulence for US shares, resulting in a market sell-off in May. This market drop was only stopped by the Fed’s decision not to cut rates at its meeting in June. European shares saw a similar situation during May, but stabilized again in June. The best performing sectors in Europe were technology, industrials, and consumer discretionary, while in the US the financial, materials, and IT sector generated robust gains. The further development for 2019 remains unclear, with the US-China trade tensions ongoing, a no-deal Brexit still on the table, and an uncertain situation in Hong Kong with ongoing anti-extradition bill protests.

Public Markets | Key Trading Statistics

Public Markets Overview

Public Comparables Detail

Our Sector Practice & Selected Experience

Discrete & Process Automation

Test & Measurement

Engineered Components

Communication & Connectivity

The information and views contained in this report were prepared by Harris Williams LLC (“Harris Williams”). It is not a research report, as such term is defined by applicable law and regulations, and is provided for informational purposes only. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any securities or financial instruments or to participate in any particular trading strategy. The information contained herein is believed by Harris Williams to be reliable but Harris Williams makes no representation as to the accuracy or completeness of such information. Harris Williams and/or its affiliates may be market makers or specialists in, act as advisers or lenders to, have positions in and effect transactions in securities of companies mentioned herein and also may provide, may have provided, or may seek to provide investment banking services for those companies. In addition, Harris Williams and/or its affiliates or their respective officers, directors and employees may hold long or short positions in the securities, options thereon or other related financial products of companies discussed herein. Opinions, estimates and projections in this report constitute Harris Williams’ judgment and are subject to change without notice. The securities and financial instruments discussed in this report may not be suitable for all investors and investors must make their own investment decisions using their own independent advisors as they believe necessary and based upon their specific financial situations and investment objectives. Also, past performance is not necessarily indicative of future results. No part of this material may be copied or duplicated in any form or by any means, or redistributed, without Harris Williams’ prior written consent.